A living trust has many advantages over a simple will or testamentary trust
(trust after death). The first advantage is that it keeps the IRS even further
out of the process than does either a will or trust that becomes effective after
death.
The second is that, unlike a testamentary trust, a living trust is not
continually supervised by the court. And finally, a living trust is far less
likely to be challenged, because creating a trust while you are alive makes
contests over what you intended easy to resolve (you are still there to make
your wishes known).
It is less likely that a relative will come forward and say that they think
you are insane or incompetent, while you are still around to challenge the
assertion. As instruments go, the living trust has a great deal to offer.
The only downside of the living trust may be that your would-be-heirs
(provided you had a will) know what you are giving them. Those who are being
extra nice just in case they might get something, and for that reason alone, may
stop visiting as often, although that may be a blessing in disguise.
That is the great thing about a will -- people only know what you think of
them after you're beyond hearing complaints and insults. However, trusts are by
most accounts still vastly superior.
Elements of a trust:
* A trust is easy to form and it is a trust's minimal
requirement that makes it such a flexible instrument for asset transfer.
* A
trust is created when the settlor (a term denoting the creator of the trust)
places property into the care of another person or group (called the trustee)
for the benefit of a third party beneficiary.
* The property used to create the
trust is traditionally used to generate income for the beneficiary.
* One rule
is that the settlor (the creator of the trust) cannot be the sole beneficiary of
the trust. This means that you can't create a trust by placing assets into the
care of another person or group solely for your own benefit, but it is okay if
you benefit too.
So, unlike a will, you can use a trust to create income for yourself before
you die and build your would-be-heirs into the trust as well. The only real
problem this creates is that the other beneficiaries (your heirs) may have
rights to the trust before you have passed.
However, the instrument is flexible enough to allow for a great deal of
control over this aspect of the trust, such that if you wish to create a trust
whose other beneficiaries' rights grow greater upon your passing, that is easy
to do. This definitely makes a trust something to explore with your lawyer when
you do your estate planning.
For example: The creation of a trust begins when you put your assets into the
care of a third party, like a bank or an estate planning attorney or a trusted
relative or friend. Your attorney may be able to structure the trust so that you
get the vast majority of the benefit and allocate a very small portion of the
benefits to the other beneficiaries.
Your attorney should be able to design the trust so that, upon your passing,
your share of the benefits goes to the other beneficiaries in the amounts you
see fit.
By bringing your beneficiaries into the trust before your passing you will
have greater control over their ability to contest what happens after you are
gone. You will also insulate your assets from taxation schemes that affect
wills, but do not have any effect on trusts.
In most cases the trust is by far the better option for estate planning and
you should seriously consider asking your attorney to explain it as an option.
